Principles of Taxation

7 Key excerpts on "Principles of Taxation"

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  eBook - ePub

  Public Sector Revenue

  Principles, Policies and Management

  • Alberto Asquer(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  2 Taxation Principles, types and effects        

  Principles of Taxation

  Taxes constitute a main source of public sector revenue in many countries nowadays. While there are many definitions of taxes, especially across different countries, a general understanding of the term is the one provided by the Organisation for Economic Co-operation and Development (OECD, 1996), which defined it as ‘compulsory, unrequited payments to general government’. The meaning of the term ‘unrequited’ is that taxes are paid without any proportionate benefit provided by government to taxpayers. Taxes also include social security contributions, if they are not paid on voluntary basis. Taxes can also include licence fees, although the borderline between taxes and fees (or charges) is not sometimes too straightforward.

  A distinguishing feature of taxes is that tax obligations arise from the power of the government to impose them on taxpayers. In this sense, taxes are a quintessential manifestation of the sovereignty of states. Governments can require particular categories of citizens (or, in some case, residents irrespective of their citizenship) and private entities (such as companies and charities) to pay taxes to contribute to the running of the government and the implementation of public policies and programmes.

  Taxes, however, are not arbitrarily decided. As has been long debated within scholarly and political circles, taxes should comply with the fundamental principles of ‘good taxation’. One of the earliest formulations of these principles is found in the writings of Adam Smith (1776), who identified the principles of fairness, certainty, convenience and efficiency.

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  Public Finance in Theory and Practice Second edition

  • Holley H. Ulbrich(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Chapter 17 .

  Passage contains an image 11 Principles of Taxation I Efficiency and Equity Issues Introduction

  Given the need to raise revenues to fund the activities of government, it is the task of economists to figure out how to design a revenue system that is both efficient (minimizing distortions in household and business decisions) and equitable (distributing the burden fairly). Figuring out how to best raise revenue has been a central concern of economists at least since Adam Smith devoted an entire book of The Wealth of Nations (1776) to “the revenue of the sovereign,” including his famous dictum that the taxes one pays should be “proportional to the revenue enjoyed under the protection of the state.” David Ricardo, an important nineteenth-century figure in the history of microeconomic theory, titled his most famous book Principles of Political Economy and Taxation.

  Until the latter half of the twentieth century, courses in public sector economics were aptly named public finance, because they concentrated so heavily on the revenue side of the public sector to the neglect of the equally important decisions on the expenditure side. Today the balance has shifted, but an understanding of the principles of tax design, both theoretical and applied, is still a central part of the study of public sector economics.

  Criteria for Evaluating Tax and Revenue Systems

  Every type of tax has positive and negative attributes. Some are more stable than others, or create fewer distortions in household and business decisions. Some are more costly to collect than others. Some are hidden, others highly visible. Some have broad bases, others narrower bases. Certain kinds of taxes are useful for correcting externalities while others may lend themselves to a more equitable distribution of tax liabilities.

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  Taxation by Political Inertia

  Financing the Growth of Government in Britain

  • Richard Rose, Terence Karran(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  CHAPTER THREE

  Exercising the Taxing Power: A Public-Policy Model

  Like the points of the compass, the principal determinants of tax revenue are few but diverse: laws, public administration and the economy. Because they are few, they are easy to state in the abstract. Because the ramifications of each is different, most discussion of taxation is specialized, concentrating upon one element only. Yet to look solely at tax legislation, or the administration of tax collection, or the relation between taxes and the economy, is to lose sight of their necessary interdependence. Tax revenue is not determined solely by any one element; it results from the interaction of tax laws, administration and economic activity.

  As a classic function of government, the procedures for taxation have evolved through the centuries; they have been routinized by public officials responsible for collecting the billions of pounds that government needs. The accretion of detail and the development of specialist concepts and procedures creates barriers to understanding the underlying principles of this basic activity of government.

  A public-policy model can bring together what is separated by the barriers imposed by specialization among the professionals of tax administration, and by the division of labour in the social sciences. Taxation combines elements of politics, administration, economics, law and accountancy – including the history of each of these subjects. A public-policy model can focus upon all that is necessarily involved in collecting taxes. Examining only tax laws ignores the influence of the economy in determining how much money such laws can actually raise. Focusing exclusively upon the state of the economy ignores the political considerations that affect how much money the government seeks in taxes, and how it goes about collecting revenue.

  To understand taxation, we must understand generic properties of revenue-raising. Tax revenue (TR) is a function of Laws (L), Administration (A), and Economic Activity (E).

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  Studies in the History of Tax Law, Volume 9

  • Peter Harris, Dominic de Cogan(Authors)
  • 2019(Publication Date)
  • Hart Publishing

    (Publisher)

  Although attentive to the interests of individual taxpayers, benefits taxation facilitates evaluation of the fiscal system as a whole by linking taxation and public services. This may provide grounds to justify or to criticise a tax as it focuses attention on both the benefits and the costs of particular policies. 43 Integration of tax burdens and public spending into a common analytical framework is a significant advantage for the benefits theory in relation to ‘ability to pay’ theories. ADVANTAGES OF BENEFITS TAXATION The benefits principle might be defended as a requirement of fair terms of cooperation between citizens or as a means of ensuring fair relations between the state and its citizens. The classical benefits principle is most obviously aimed at the first notion of fairness, and the modern benefits principle at the second. However, both principles may be defended in either way. I will first consider the benefits principle as a norm of fair distribution of tax burdens and then consider how the principle might be defended in terms of broader considerations of political economy. Tax Fairness as Proportionality The classical benefits principle is founded on an intuitive notion of fairness in exchange that is aimed at balancing the benefits and burdens of cooperation. Contributions to the state reflect the benefits that one receives in return. From those to whom much is given, much is expected, and those who receive little might be expected to contribute little in return. Fiscal exchange under the classical principle is not based on market pricing, but instead requires that tax obligations reflect a taxpayer’s ordinal position in terms of benefits from the state, so that those who receive greater benefits bear greater burdens

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  Handbook on Taxation

  • W.Bartley Hildreth(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  Economic analysis is not necessarily as definitive as compared to the private market in determining how much should be produced either when the goods and services are produced by a public agency or when the government purchases the good or service from a private company but provides it to the general public. Economic analysis is not as definitive in determining exactly who should receive the goods and services, either produced by the government or purchased by the government to be provided to various citizens, as compared to such decisions in the private market. Similarly, economic analysis is not nearly as definitive when it comes to deciding exactly who should pay for these goods and services being produced by the government or being purchased by the government from a private company for distribution to private citizens. The answers to the basic questions to which any economic system has to respond—what to produce, how much to produce, how to produce it, and for whom it should be produced—become ambiguous in dealing with the government sector. The political process is instrumental in reaching decisions regarding how much of the nation’s resources are used for governmental functions and who pays for these activities.

  The individual or the business makes decisions based on self-interest. The public sector makes decisions based on the overall interest of the community as defined by the political process. Public decisions will affect private decisions, both from a positive perspective, such as making use of transportation facilities, and from a negative perspective, such as tax laws that the person or business tries to circumvent if at ail possible.

  The focus of this book is on paying for public services through a variety of taxes. The focus of this chapter is to document the basic economic principles and properties of taxation so that the reader can relate principles to the various taxes as they are analyzed in later chapters.* These taxes are imposed by a political process, but must be examined within an economic environment as well. Someone must suggest to the political process the basic principles and properties upon which you construct an economically viable tax structure. The political process can amend this suggested tax structure, but at least there will be a standard to evaluate the final outcome of the political process.

  I.   CHOOSING A METHOD OF TAXATION: BENEFIT PRINCIPLE OR ABILITY TO PAY

  Taxes are typically based on either a benefit principle or an ability-to-pay principle. The benefit principle states that the person or business paying the tax should be the same person or business that is benefitting from the public service that is being financed by the tax. One clear example is the federal and state gasoline tax, which relates to a degree the financing of highway construction and maintenance to the collection of the tax on gasoline and special fuels (diesel). Persons using the highway system are also the persons paying the gasoline and special fuels tax. For the benefit principle to work in this case, the governments must allocate all of the gasoline tax to highway construction and maintenance, or at least to transportation-related expenditures. There are other examples, such as fishing and hunting fees that pay for the game wardens to supervise such activities and to maintain them for all fishermen and hunters from a long-term perspective. Regulatory fees are also based on the benefit principle. The individual or business being asked to comply with a law will also typically pay a fee for a government official to inspect his activity. College tuition at public institutions is a user fee paid by the person who is the primary beneficiary of the educational service.

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  A Primer on Property Tax

  Administration and Policy

  • William J. McCluskey, Gary C. Cornia, Lawrence C. Walters(Authors)
  • 2012(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  9 Tax Criteria: The Design and Policy Advantages of a Property Tax Gary C. Cornia Introduction This chapter describes and illustrates the various criteria that are employed to guide tax policy and tax administration. The aim is to provide policymakers with a set of guidelines they can use to evaluate the tax schemes they confront. The guidelines or principles used here are described in most public finance texts (Gruber, 2005). In keeping with the theme of the book the issues are addressed from the perspective of local policymakers. Taxes, tax systems and other revenue producing devices (fees and charges) have the potential to change the behaviour of individuals and organizations. Clearly, if taxes can change individual and organizational behaviour, then in aggregate they may also change entire economies. The question is: what is the direction of the change to an economy? The changes that are caused by taxes may be positive. However the public and the media generally view the behavioural outcomes triggered by taxes as negative. Illustrations of the negative effects of taxes are easily developed. A tax, for example, may raise the price of a good or service and the increased price may cause a decline in its consumption. This outcome would be especially likely if the tax was only imposed on a limited number of goods or services (Spilker et al., 2011). The consumer would obviously have the option to purchase fewer of the taxed goods and more of the non-taxed items. The rational consumer would likely reduce the purchase of the taxed goods. Over time, we would reasonably expect that the reduction in purchases would reduce the demand for the taxed good, the number of workers who are employed to produce the taxed goods and eventually the reduction of the profits of the owners of the business producing the goods

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  The Economics You Need

  • Enrico Colombatto(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Since the analyses of the role, legitimacy, and effectiveness of government intervention are outside the scope of this book, we shall not investigate the merits of all these actions, nor shall we discuss whether governments keep their word. Rather, we take it for granted that government intervention exists, that most citizens believe it is desirable, and we focus on the tools that governments resort to in order to obtain their goals. We analyse taxation and regulation in this chapter, deferring to later parts of the book the study of monetary, fiscal and international matters. In particular, the next section presents a general overview of taxation; sections 6.3 to 6.9 examine the technical features of taxation and the extent to which it affects taxpayers’ welfare; sections 6.10 and 6.11 deal with regulation.

  6.2 On tax targeting, tax collecting and tax paying

  The world of taxation includes three key components: tax targeting, tax collecting and tax paying. Tax targeting relates to the economic activities/variables which the tax authorities consider as their goal: specific firms or industries (e.g., to rein in pollution), certain categories of consumption (e.g., to protect individuals’ health against their bad judgement), or some groups of individuals (e.g., for the sake of income redistribution).

  By contrast, tax collection refers to how tax revenues are gathered. For example, it may happen that a tax designed to hit consumers is actually collected and transferred to the government by producers: a tax on alcohol might be justified by health concerns over drinkers (the target), but it is collected and transferred to the government by producers, retailers, or importers.

  Third, the tax burden relates to those who actually pay the tax. For example, the value-added tax (VAT) is a proportional tax on the value of production. In principle – though reality is often characterised by ‘exceptions’ motivated by equity or perhaps political expediency – VAT is determined by considering the market value of the goods and services sold to the buyers, minus the market value of the goods and services the seller buys from suppliers operating outside his firm. This difference – which amounts to the value of wages, salaries and profits before depreciation – is called value added. The tax is collected from the firm. Yet, when the producer compensates for the VAT by raising the price of the goods he is selling, the seller is both the tax target and the tax collector, but at least part of the tax burden falls on the buyers.

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